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CME: More Cull Cows Expected to Come to Market

US - There has been discussion regarding the Choice-Select spread on the beef cutout value, but for today’s article we are going to focus on the cow cutout value, write Steve Meyer and Len Steiner.

It is calculated the same way as the beef cutout value, but using products from cow carcasses. This cutout value is influenced by cull cow supply, from both the beef and dairy industry, as well as imported boneless beef product from Australia, and demand for 90 per cent lean beef.

The product of the majority of a cow carcass is 90 per cent lean beef. This product is blended with 50 per cent lean beef, from steers and heifers, to produce ground beef and hamburger at varying defined lean to fat ratios.

Starting with the cow cutout value, the most recent weekly average price data from USDA-AMS reported the value at $173.33 per cwt.

This is compared to $228.22 a year ago, and $162.09 for the previous five year average. So far in 2016, the cow cutout value has tracked slightly above the five year average level.

The 90 per cent fresh lean beef wholesale value was at $217.98 per cwt. last week, below year ago levels of $293.07 but tracking slightly above the previous five year average of $207.78.

On the live animal side, Southern Plains slaughter cow prices were most recently tracking at $83.08 per cwt. live weight. This time last year, cull cow prices were $111.42, and the previous five year average price was $77.70.

The dairy inventory appears to be fairly level right now, based on minimal year-over-year changes in dairy cow slaughter. The increase in beef cow slaughter, compared to 2015, is not necessarily surprising.

More cows were held back, instead of culled, the last two years but they will only have a certain number of productive years left. As the US beef herd growth rate slows, we expect the industry to revert back to more normal culling levels which means more cull cows coming to the market compared to the past two years.

The two other main pieces that influence the cow cutout value are imported boneless beef product from Australia, and our domestic cold storage levels of boneless beef.

First on the imported product side, during 2015 the US set a new record for beef imports from Australia, surpassing 2014’s level by 16 per cent and totalling almost 1.3 billion pounds.

While there is not publicly available data on what specific beef products were imported from Australia, it is generally assumed that a majority is similar to 90 per cent lean beef product and used for manufactured food items.

This year, beef imports from Australia from January through April, were 25 per cent below that same time frame in 2015. Reasons for this included increased beef supply in the US and improving moisture conditions in Australia as they recover from last year’s drought.

At the same time, our levels of beef in cold storage have been consistently decreasing. About 90 per cent of beef that is in cold storage is boneless, however there is not data available that tells us what cuts or types of boneless beef are in cold storage.

This past April, beef cold storage levels were 6 per cent below year ago and 12 per cent below the most recent high (January of 2016).

Combining all these factors, it appears that the cow cutout value and 90 per cent fresh lean beef price are seeing a bit more price support compared to the slaughter cow price.

This may stem from more usage of boneless beef in cold storage due to the decrease in Australian beef imports. Australian beef imports should continue to track below year ago levels, as their herd liquidation limited their available cattle and beef supply.

If we continue to use product in cold storage, this combination of factors should provide some price support for slaughter cow prices. Of course, ground beef demand is always a factor, too.